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Big Changes Loom If High Gas Prices Hold

5/29/2008

CHAMPAIGN, Ill. — Americans' usual fuel-saving shortcuts could give way to dramatic changes affecting the nation's auto, housing and even job markets if gasoline prices stay at record highs nearing an average $4 a gallon nationwide, a University of Illinois economic expert says.

"For most of us, we're not going to change anything fundamental right away," said Don Fullerton, a finance professor and former deputy assistant secretary of the U.S. Treasury Department. "We may cut out a few discretionary trips or shift household spending and just pay for the gas for a while."

But if historic pump prices hold, cash-strapped motorists will likely begin making broader changes that could potentially reshape lifestyles and buying habits, said Fullerton, a leading researcher on the economic impact of environmental regulations such as gasoline taxes and pollution mandates.

He says lingering high prices could hasten a shift from gas-guzzling trucks and sport-utility vehicles to hybrids and smaller, more fuel-efficient cars – "good for automakers like Toyota and Honda, but not so good for Ford and some other U.S. automakers that rely on SUVS and trucks."

Ultimately, the nation could see a migration back to cities and away from suburbs as Americans try to balance fuel costs that are rising far more sharply than their paychecks, Fullerton said.

"It hasn't been unusual for people to live miles from where they worked because they liked the house when they bought it or they liked the job when they took it," Fullerton said. "But gas prices that have doubled in the last two years will encourage more downtown living, in condos where they can walk to work."

But Fullerton says population losses in suburbs would likely be small and gradual, mitigated by shifting demand. Property values downtown would rise, but fall in outlying towns, so bargains in the suburbs would lure people who aren't as worried about fuel costs.

Some people could opt to change jobs instead, finding work closer to home, Fullerton said. He says high gas prices also could fan a growing wave of telecommuting, letting workers operate on their home computers instead of at the office.

He predicts fuel prices will remain high, but says increases will likely slow from the rapid climb of the last two years.

"A return to $3 gas would be very optimistic," he said. "Price usually shows a general upward trend. It just sort of has to. Mother Nature isn't making any new oil. There is what there is in the ground. It just keeps getting more scarce over time."